Carmen M. Reinhart

Although this book is a valuable contribution to the economic history of economic crises, it is strongly recommended to avoid the e-book version. The book consists of countless very detailed charts and graphs that are extremely difficult to read in the e-book version. Reading the book is made even more difficult when reading several of the chapters which consist primarily of a set of charts with the text that explain the charts.

The book has increased in importance now that Carmen Reinhardt has been named as the Chief Economist at the World Bank. It can be expected that she will be utilizing her analysis from this book as she is forced to deal with the coming Corona-inspired Recession… (more)

An interesting empirical macroeconomic book targeted towards a popular audience. Very readable and not as long as it looks, because of the extensive use of tables, and graphs that stretches the physical length of the book. As a threshold matter, the book does not use the controversial data that created a bit of a stir in the academic community. Some of Reinhart/Rogoff's other empirical work purported to show that high debt levels were correlated with slow growth, but some other economists had challenged this by purporting to show coding errors in the dataset (https://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up) [How do you know a macroeconomist has a sense of humor? She adds a decimal place to her estimates]. That data does not show up in this book, and that analysis is not mentioned in this book. However, it is fair that the skeptical reader may think that the same habits/methods that lead to alleged coding errors in that analysis may extend over to the dataset used in this book (but as far as I'm aware, there has been no such allegations).

The book is readable and an enjoyable review of macroeconomics. It is mostly empirical, and relies heavily on a massive unprecedented dataset that the authors have put together that span centuries (though the bulk of the analysis focuses on the 20th century, with a secondary focus on the 19th century. The claim to "eight centuries" is a bit of a marketing gimmick, since the data only extends that far by including a few rather ancient discrete illustrations of currency debasement). Much of the book is creating categories (such as types of crisis), counting occurrences, finding correlations and constructing interesting indexes (like a measure of global crisis by counting crisis experienced on a geographical scope). This can get a little unsatisfying sometimes, because it's somewhat rote and since some data can be extremely spotty. However, here and there, there are short succinct explanations of theory when it ties into the empirical analysis. In particular, I enjoyed learning about Krugman's theory that hard peg fixed foreign currency exchange rates are prone to failure because of the lack of political will power to impose internal constraints to maintain the exchange rate, Bernanke's theory that the Great Depression hit hard and last long because of its crippling of the financial lending sectors which froze credit to businesses, and the multiple equilibrium theory of debt lending (because countries can rely on their tax base to borrow money, default never occurs from lack of ability to pay, but from a complex interaction between a lack of a willingness to repay [and with the loss of gunboat diplomacy, there's no real way to force them to meet their obligations, and notions of fairness can influence the decision to repay (relevant to "odious debt")], and the unwillingness of the international credit market to roll over debt. As a result of these interactions there are actually multiple theoretical fragile equilibrium points making it hard to predict sovereign crisis).

The dataset which stretches over such a long time period has some interesting implications. For one, many stereotypes about the economic stability/instability of regions are wrong when looking at the region through the lens of a larger time span. For example, many "advanced" nations frequently defaulted from their sovereign debt obligations in their early days before "graduating" to nations that rarely default. And unlike sovereign debt crisis, no country has graduated from banking crisis (as 2008 shows). Another interesting pattern that occurs in the data, is that banking crisis are frequently preceded by large capital inflows into countries (either from de-regulation of the financial sector or freeing of capital constraints) [and on a more general level the clustering of different types of financial crisis because of their relationships to each other]. Somewhat surprisingly, the authors explain that there has been a lack of scholarship on domestic debt relative to the scholarship on external debt. Part of the issue is the spotty data caused by government in-transparency. The authors collect some preliminary data on domestic debt and argue that it could be the missing explanation for some otherwise unexplainable external debt defaults/inflation crisis (inflation is one way to effectively default on debt without a formal default). A running theme of the book is "this time is different" mentality, where people make an argument about a "new" economy that somehow freed from old constraints and concerns lead excessive debt accumulation which leads to a crisis. The authors imply that a broader view of history, for example stepping back and observing datasets that run for centuries reveal patterns that could help ameliorate this time is different mentality.… (more)

This book is a joy if you're the kind of person who likes good statistics and qualitative reasoning. One hundred pages of appendices alone! It's almost beautiful.

A painstaking analysis of statistics of financial crises throughout history. Some are from the 13th century, yes, but the bulk of the data is from the 19th century onwards. What do they learn?

1) Debt accumulation brings risk.
2) Severe financial crises have one of the following: Decline in housing prices, unemployment rises, output falls, government debt rises even higher.
3) Not all economic predictions are created equal.
4) Developed nations might be able to avoid and graduate from external debt defaults, but all are still at risk from bank defaults.

There is certainly more. These are some of the most salient points. I won't say more because 1) the arguments are complicated and 2) I want you to take a look at this. Seriously.

As for our current crisis? Well, there simply has been little comparison for a global crisis so far. Exports might not be as big an aid for growth as seen before. We are lucky that this is only the worst crisis since the Great Depression.

A necessary book. Hard mathematical truths. I quote: "We hope that the weight of evidence in this book will give policy makers and investors a bit more pause before they declare, 'This time is different'. It almost never is."… (more)